Wall Street for Dummies: Icahn, Ackman, Apple
Here’s the latest news from Wall Street. Two guys who apparently don’t like each other are having a big fight over whether or not Herbalife, the nutrition company, is a good investment. Billionaire Carl Icahn thinks the company stock is a bargain and is buying more of it. Billionaire Bill Ackman, another Wall Street highflier, thinks Herbalife is a modern Ponzi scheme because he says the products they sell are largely sold to new sales people who then fail to sell it to anybody and so, to make money, find new salesmen to sign on for which they get a commission. Get it? Ackman thinks one day the company will be forced to change the way it does its business, thus causing a decline in the stock price. Bill Ackman is buying “short,” meaning he is gambling that the stock price will fall. If the company becomes a dog, he wins. If it becomes a tiger, he loses.
After six consecutive years of decline, the number of people killed annually on our highways rose from 2011 to 2012. In 2011 it was 34,600. In 2012 it was 36,200. This additional activity is another sign that the economy is on the upswing.
Apple makes money every year by selling things that are terrific for more than their competitors charge for roughly the same thing—because Apple makes them better, cooler and they thought it up, and not because it costs more to make. Everybody’s happy but Apple investors. Seems that a portion of their massive profits—Apple has $137.1 billion in cash—has been squirreled away at banks, many of them overseas, and nothing is being done with it. There are two likely reasons they are doing this. Their taxes on earnings overseas is just 1.9%, and they want to avoid American taxes. And two, they haven’t found anything for that kind of money they would like to buy. So it sits and the stock price has fallen and some investors want something done with that money.
One of their big stockholders, billionaire hedge fund manager David Einhorn, whose hedge fund Greenlight Capital owns enough stock so as not to be ignored, says that Apple should give some of this money out in the form of permanent preferred stock that pays dividends in an effort to compensate for its falling stock price. Einhorn filed a lawsuit against Apple. But last Friday, he dropped it.
Boeing, the maker of airplanes, has been told by the FAA it has to ground all of its new 787 Dreamliner aircraft because batteries on several planes went bad and caught fire or started issuing smoke. The batteries operate an electric system used for auxiliary electricity but, well, STILL. They have to be fixed before another wheel lifts off the runway. Personally, I thought they should just put in a new but older technology battery, but that’s not the answer for some reason. So the existing planes sit on the runways, Boeing keeps popping out the planes from its assembly line at the rate of 38 per month and Boeing is running out of parking space at their factories. Oh well.
Office Depot and Office Max are going to merge. The combined businesses after the merger will challenge Staples, their major competitor. What are they going to call the new company? I know. How about “The Office.”
Remember when years ago IBM made this rubber mat you could stand on in front of your refrigerator which, because it could detect what you had put into the refrigerator before and then taken out, would spit out a shopping list of what was needed to bring the contents up to snuff? No? Well, it wasn’t a big hit, so that’s why you never heard of it. Now Google has this new set of glasses that, simply by looking at something and saying something about it, you can make it happen. Reply to your email. Play a game. Watch a video. Whatever.
This past week, they announced they will produce a limited number of these glasses and sell them early to consumers who wish to shell out $1,500—but only if they tweet a creative way the would use the device to Google and Google likes the idea. Be careful crossing streets.
Many giant corporations consider that having China hack your company is a badge of honor. It shows you are “worth it.” Recently, businesses supposedly hacked by China have included IBM, Google, The New York Times and Apple. As far as we can tell, no significant harm has been done. China has just been sniffing around, though they have copied lots of data. Nevertheless, China this week announced that the supposed hacking outfit there, the People’s Liberation Army in Shanghai, hasn’t done it. “Chinese military forces have never supported any hacking activities,” Mr. Geng, a spokesman for the army, said. Your nose is growing, China.
The New York Times has announced it will sell The Boston Globe newspaper, which they bought in 1993 for $1.1 billion. It is believed by some that they will have to accept about $150 million when they sell it. Well, 1993 was a long time ago. Anyway, since the company that owns The New York Times lost money in 2012, when The Globe is sold they will have some extra bucks to shore up the Grey Lady’s foundations. (Grey Lady is a nickname for The New York Times.)
Back in ’08, the banks were selling one another “bundles” of mortgages that were issued to people who didn’t have a pot to pee in. These worthless mortgages soon got piled so high that the whole stack fell over sideways, burying everybody from Wall Street to Main Street. Why did this happen? Why didn’t it just go on forever? Well, banks started to realize they weren’t getting paid back on the mortgage loans they had given. Yes, the bundles were rated AAA by the rating agencies. Right. But Mr. Hoople’s net worth was bupkis. Those bundles weren’t really worth anything. Other banks buying the bundles started to catch on. They weren’t going to play this game anymore. They ran away, then everybody ran away, and now nothing was being traded. Ka-Boom. What a big collapseroni.
Most federal regulators were unable to see this coming because they thought that real estate always goes up in value. But what can you do? After bailing everybody out to the tune of maybe $5 trillion dollars (first Bush, then Obama), the now beefed-up Fed regulators took to looking to see whose fault this was. The bankers were really foxy and played “he did it, no he did it,” and eventually took to blaming the government for letting them do it. Well, there were a few slaps on the wrist and that was it.
Now the Feds are after the ratings agencies. How could they rate everything AAA? The ratings agencies are not so foxy as the bankers, so perhaps some heads will roll, the axes will fall and some regulators will have to fall on their shield or swords. We shall see.
Here’s the really biggest news on Wall Street. On March 1, sequestration happened. Job cuts in the government (military, education, paper pushers, passport stampers, etc., etc.,) went into effect. Since the economy is heading for doom and bankruptcy in the long run anyway if the national deficit isn’t reigned in, which so far it isn’t, everybody knows these cuts have to happen, though, in the short run they could cause the country to fall into depression when we would rather not have that. What you really have to note here is that each political party, to get your votes, will always, always, always oppose job cuts but secretly know it has to be done, so the best thing is to make it the fault of the other party. Which, of course, it is.
Class dismissed.
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